Microsoft's Windows propels pleasant 3Q surprise

SAN FRANCISCO (AP) — Microsoft produced a surprisingly strong quarter to start the year, pleasing investors looking forward to even bigger things from the software maker's much-anticipated overhaul of Windows operating system next fall.

The performance announced Thursday defied the conventional thinking that Microsoft would have trouble selling more Windows licenses as more people snapped up tablet computers, such as Apple Inc.'s trendsetting iPad, while other prospective personal computer buyers delayed making their purchases until the next version of Microsoft's operating system hits the market.

That didn't turn out to be the case during the three months ending in March as revenue at Microsoft's Windows division edged up by 4 percent from last year to $4.6 billion. Microsoft attributed the gain to an uptick in businesses who bought licenses for Windows 7. It marked only the second time in the past six quarters that Microsoft has registered a year-over-year gain in the Windows division.

High hopes are riding on the revamped system, Windows 8, because Microsoft designed it to run on devices that can be controlled by touch, as well as keyboards and computer mice. That means Windows 8 can serve a dual purpose: it could help spur the development of sleeker PCs that spur more sales and also give Microsoft a chance to grab a piece of the rapidly growing tablet computer market.

Although Microsoft hasn't announced a target date yet, most analysts believe Windows 8 will go on sale in September or October.

Microsoft Corp. earned $5.1 billion, or 60 cents per share, during the period marking first three months of the year — the Redmond, Wash company's fiscal third quarter. That was a 2 percent decline from net income of $5.2 billion, or 61 cents per share, a year ago.

Last year's results were boosted by a tax benefit of $461 million, or 5 cents per share.

Revenue rose 6 percent from last year to $17.4 billion

Analysts had anticipated earnings of 58 cents per share on revenue of $17.2 billion, according to a FactSet survey.

While the Windows division held up better than expected, one of Microsoft's recent strongholds weakened. The deterioration occurred in the entertainment division as Microsoft's shipments of its Xbox 360 video game console plunged by nearly 50 percent to 1.4 million units. The sagging demand occurred as more people are playing games on phones and tablet computers. Revenue in the entertainment division declined 16 percent from last year to $1.6 billion.

Microsoft's long-suffering online division, which has struggled for years to compete against Internet search leader Google Inc., managed to narrow its losses in the latest quarter. The division, which includes its Bing search engine, posted an operating loss of $479 million compared to a loss of $776 million at the same time last year. Microsoft's online revenue totaled $707 million, a 6 percent increase. By comparison, Google's revenue during the same period surged by 24 percent.